Capital Gains Tax
I know I'm in the wrong forum but it is very quiet there.
I bought a house in January 2003 for 31500 and spent 6000 renovating it. I started renting it out in May 2003 and she has now finally been evicted. Yippee !! It is now worth approximately 70000 - 75000.
The question is, how much CGT would have to be paid and is there anyway that I can avoid paying it? My husband can move in there if required!!!
All help would be appreciated.
Don't know what the rates and thresholds are for CGT without checking elsewhere but some points for you to consider:
- Transfer 50% of the ownership to hubby before you sell (if you trust him ), so you can share the CGT burden between you. Needs to be done 'officially' not just agreed informally between you. If one of you is in a higher income tax band than the other, you'll benefit by varying the figure of 50%.
- You can't save CGT by your husband just moving in there; the property has to be your residence, and the IR have to be convinced of this.
- As well as the 6K you spent doing the place up, you can add the fees and costs incurred in buying and selling; make sure you don't miss anything!
Karongo is your man on these forums for tax questions claire....but he doesnt seem to post in the rental questions much, only the tax section!
Funnily enough, I received a letter from my accountant today about this. I quote:
"Sale of a principal private residence (PPR) is generally exempt from CGT. Where a property has been used as a PPR at any time during ownership, the gain arising in respect of the last 3 years of ownership will remain exempt from CGT regardless of the use of the property during those last 3 years."
Please, don't ask me any questions on this, I have simply copied part of a newsletter from my accountant.
Thanks Mr Woof.
Can anyone confirm that what that letter states is. Even though we have rented out the house for 2 years and my husband now moves in there until it is sold. We wouldn't have to pay CGT as long as it is sold before January, this is when the 3 years is up.
Am I being thick here and I know the grammar is terrible.
Mr Shed, Thanks for the compliment.
QUOTE FROM DEANDEVY: ''I know I'm in the wrong forum but it is very quiet there.''
REPLY: Quiet compared to here, but I am not aware of your posting there which hasn't been replied to. Never mind, lets stay in the buzzing environment.
QUOTE FROM DEANDEVY: ''Thanks Mr Woof. Can anyone confirm that what that letter states is. Even though we have rented out the house for 2 years and my husband now moves in there until it is sold. We wouldn't have to pay CGT as long as it is sold before January, this is when the 3 years is up. Am I being thick here and I know the grammar is terrible.''
REPLY: I cannot in all honesty answer your last sentence above but I would go along with the saying that half knowledge is dangerous. Neither Mr Woof nor you should interpret an isolated paragraph in a way which suits you.
Lets now deal with your query. I will try and keep this as simple as possible.
QUERY: ''I bought a house in January 2003 for 31500 and spent 6000 renovating it. I started renting it out in May 2003 and she has now finally been evicted. Yippee !! It is now worth approximately 70000 - 75000.''
REPLY: A couple is allowed to benefit from CGT exemptions on only one residence at a time. But this benefit is only allowed if a particular house has been your ''only or main residence'' at any time in your ownership. If you have never lived in this property as your home, you haven't even got your 'foot through the door' so to speak. In this case, you cannot benefit from the final 3 years exemption.
Therefore, you will be taxed on all the gains after deductions for buying price, buying and selling expenses, and annual exemption.
Missing information is:
Is it in joint names or your name only, what are approximate earnings of you and your husband, do you have another home where you live, could you both let your present home and move 'lock stock and barrell' into the house bought in January 2003, could you use as 2nd home the house you bought in January 2003 etc etc.
Assuming the house is or can be in both names, and you both are not higher rate taxpayers in the year in which you sell the house, your capital gains tax bill could be approx £3,000.
If you wish to avoid this completely, you could make this your main residence as a matter of actual fact or at least make it your 2nd home and nominate it as your main residence for CGT purposes.
Did you manage to keep awake?
You are very welcome...having read some of the tax threads I can safely declare you the Paul_F of the tax world
Originally Posted by Karongo